Tax Opinion Letter

Has your investment advisor ever recommended that you speak with your tax professional before entering into a certain transaction or withdrawing qualified funds?

Have you wanted to take a certain tax position but needed a tax opinion to ease your comfort level?

We are here to assist.  Out Attorneys are able to provide tax opinions letters for individuals and businesses.

The purpose of a tax opinion letter is to justify your tax position, should it be called into question by the IRS. A tax opinion letter can help in reducing the likelihood of an audit and provide a strong rationale for a tax position or a strategy to minimize your tax exposure by referring to specific IRS codes and rulings. Since business transactions and deductions can be structured in different of ways with different tax consequences, contacting an experienced and independent tax professional early on can be of great benefit. You can get advice, input, and a tax opinion letter in advance of your final transaction or investment.

A recent Tax Court decision, Canal Corp. v. Commissioner , 135 T.C. No. 9 (2010), affirmed the importance for taxpayers to hire independent tax professionals when seeking a tax opinion. The court held that a tax opinion can be disregarded if the tax advisor writing the opinion being too closely involved with the structuring of the transaction – resulting in a conflict of interest.  Specifically the Court stated:

“Considering all the facts and circumstances, [the firm’s] opinion looks more like a quid pro quo arrangement than a true tax advisory opinion. If we were to bless the closeness of the relationship, we would be providing carte blanche to promoters to provide a tax opinion as part and parcel of a promotion. Independence of advisers is sacrosanct to good faith reliance. We find that [the firm] lacked the independence necessary for [the taxpayer] to establish good faith reliance.”

A Tax Opinion Letter, Points to Consider:

  • The letter should present the information in a straight-forward manner, clearly, concisely and completely. There is no room for ambiguity and the letter must address each of the elements of the transaction concerned.
  • An effective tax opinion letter will discuss factual details as well as technical concerns. It should include a thoughtful tax analysis. Citing examples to uphold the position from authorities and Tax Court can strengthen the letter as well. The best letters discuss the reasons in support of and against the position, to illustrate the reasoning behind the position. All supporting documentation should accompany the opinion letter to support it.
  • Generally, the letter needs to meet the threshold of “more-likely-than-not,” to effectively protect a taxpayer from any future penalty liabilities.
  • The best protection an opinion letter offers is when you get one in advance of making your decision and ultimately taking a tax deduction or investing. However, that may not always be possible. You can, and should, contact one of our Tax Attorneys to aide you in having your tax position upheld through the use of an opinion letter as soon as it becomes obvious that one is needed.